ANSWER
a. The Balance Sheets for the two years are:
Assets: 2010 2011
Current Assets
Cash $1,300 $1,090
Accounts Receivable $2,480 $2,690
Inventory $5,800 $6,030
Total Current Assets $9,580 $9,810
Long-Term Assets:
Plant, Prop. & Equip $8,400 $9,200
Minus Acc. Depreciation ($2,020) ($2,670)
Net P P & E $6,380 $6,530
TOTAL Assets $15,960 $16,340
Liabilities
Current Liabilities
Accounts Payable $1,800 $2,060
Long-Term Liabilities
Long-term Debt $7,800 $8,200
Total Liabilities $9,600 $10,260
Owner’s Equity
Common Stock $4,990 $4,990
Retained Earnings $1,370 $1,090
Total Owner’s Equity $6,360 $6,080
TOTAL Liab. & O.E. $15,960 $16,340
b. The Working Capital Accounts are:
Cash, Accounts Receivable, Inventory, and Accounts Payable
c. The Net Working Capital for 2006 and 2007:
Net Working Capital = Cash + Accounts Receivable + Inventory – Accounts Payable
2006 Net Working Capital = $1,300 + $2,480 + $5,800 - $1,800 = $7,780
2007 Net Working Capital = $1,090 + $2,690 + $6,030 - $2,060 = $7,750
d. The Change in Net Working Capital for 2007 is, $7,750 - $7,780 = -$30 or a decrease in Net Working Capital of $30.
2. From the income statement accounts on the next page:
a. produce the income statement for the year
b. produce the operating cash flow for the year
Income Statement Accounts for the Year Ending 2011
Cost of Goods Sold $345,000
Interest Expense $ 82,000
Taxes $ 42,000
Revenue $744,000
SG&A Expenses $ 66,000
Depreciation $112,000
ANSWER
a. Income Statement
Revenue $744,000
-Cost of Goods Sold $342,000
-SG&A Expenses $ 66,000
-Depreciation $112,000
EBIT $224,000
-Interest Expense $ 82,000
Taxable Income $142,000
-Taxes $ 42,000
Net Income $100,000
b. Operating Cash Flow
OCF = EBIT – Taxes + Depreciation
OCF = $224,000 - $42,000 + $112,000 = $294,000
3. From the following balance sheet accounts:
a. construct a balance sheet for 2010 and 2011
b. list all the working capital accounts
c. find the net working capital for the years ending 2010 and 2011
d. calculate the change in net working capital for the year 2011
Balance Sheet Accounts of Athens Corporation
Account Balance 12/31/2010 Balance 12/31/2011
Accumulated Depreciation $4,234 $4,866
Accounts Payable $2,900 $3,210
Accounts Receivable $3,160 $3,644
Cash $1,210 $1,490
Common Stock $4,778 $7,278
Inventory $4,347 $5,166
Long-Term Debt $3,600 $2,430
Plant, Property & Equipment $8,675 $9,840
Retained Earnings $1,880 $2,356
ANSWER
a. The Balance Sheets for the two years are:
Assets: 2010 2011
Current Assets
Cash $1,210 $1,490
Accounts Receivable $3,160 $3,644
Inventory $4,347 $5,166
Total Current Assets $8,717 $10,300
Long-Term Assets
Plant, Prop. & Equip $8,675 $9,840
Minus Acc. Depreciation ($4,234) ($4,866)
Net P P & E $4,441 $4,974
TOTAL Assets $13,158 $15,274
Liabilities
Current Liabilities
Accounts Payable $2,900 $3,210
Long-Term Liabilities
Long-term Debt $3,600 $2,430
Total Liabilities $6,500 $5,640
Owner’s Equity
Common Stock $4,778 $7,278
Retained Earnings $1,880 $2,356
Total Owner’s Equity $6,658 $9,634
TOTAL Liab. & O.E. $13,158 $15,274
b. The Working Capital Accounts are:
Cash, Accounts Receivable, Inventory, and Accounts Payable
c. The Net Working Capital for 2010 and 2011:
Net Working Capital = Cash + Accounts Rec. + Inventory – Accounts Pay.
2010 Net Working Capital = $1,210 + $3,160 + $4,347 - $2,900 = $5,817
2011 Net Working Capital = $ $1,490+ $3,644 + $5,166 - $3,210 = $7,090
d. The Change in Net Working Capital for 2011 is, $7,090 - $5,817 = $1,273 or an increase in Net Working Capital of $1,273.
4. From the following income statement accounts
a. produce the income statement for the year
b. produce the operating cash flow for the year
Income Statement Accounts for the Year Ending 2011
Cost of Goods Sold $1,419,000
Interest Expense $ 288,000
Taxes $ 318,000
Revenue $2,984,000
SG&A Expenses $ 454,000
Depreciation $ 258,000
ANSWER
a. Income Statement
Revenue $2,984,000
Cost of Goods Sold $1,419,000
SG&A Expenses $ 454,000
Depreciation $ 258,000
EBIT $ 853,000
Interest Expense $ 288,000
Taxable Income $ 565,000
Taxes $ 318,000
Net Income $ 247,000
b. Operating Cash Flow
OCF = EBIT – Taxes + Depreciation
OCF = $853,000 - $318,000 + $258,000 = $793,000
5. Find the operating cash flow for the year for Harper Brothers Incorporated if they had sales revenue of $300,000,000, cost of goods sold of $140,000,000, sales and administrative costs of $40,000,000, depreciation expense of $65,000,000, and a tax rate of 40%.
ANSWER
Using income statement format we have,
Sales $300,000,000
COGS $140,000,000
SG&A $ 40,000,000
Depreciation $ 65,000,000
EBIT $ 55,000,000
Taxes (@ 40%) $ 22,000,000
Net Income $ 33,000,000
Operating Cash Flow = EBIT + Depreciation – Taxes
Operating Cash Flow = $55,000,000 + $65,000,000 - $22,000,000 = $98,000,000
6. Find the operating cash flow for the year for Robinson and Sons if they had sales revenue of $80,000,000, cost of goods sold of $35,000,000, sales and administrative costs of $6,400,000, depreciation expense of $7,600,000, and a tax rate of 30%.
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